, livestock operations, agricultural supplies & logistics, agricultural machinery, agricultural chemicals, and biofuels.
The underlying index methodology defines its universe as those stocks in the bottom 10% of market capitalization within the agribusiness sector. Constituents are then weighted by float adjusted market cap with individual securities capped at 10%.
The approach yields 52 current holdings, the largest being Viterra Inc (VTRAF) 9.1%, Tractor Supply Co (TSCO) 8.7%, Smithfield Foods Inc (SFD) 8.0%, Nutreco NV (NUTCF) 5.5%, Ebro Foods SA 4.6%, Cosan Ltd (CZZ) 4.5%, Nippon Meat Packers Inc (NIPMF) 4.2%, Toro Co (TIC) 4.1%, China Agri-Industries Holdings Ltd 3.7%, and Graincorp Ltd A (GRCLF) 3.2%.
Unfortunately, none of the CROP literature from Index IQ contains the country breakdown, which is standard practice for any fund calling itself a “global” ETF. The industry breakdown for CROP is Agricultural Supplies & Logistics 24.9%, Agricultural Machinery 23.7%, Livestock Operations 19.4%, Crop Production & Farming 16.8%, Biofuels 8.2%, and Agricultural Chemicals 7.0%.
Index IQ believes the small cap agribusiness segment is well positioned to benefit from rising food prices, increasing populations, and the growing demand for alternative fuels. CROP has an expense ratio of 0.75%. Its major competitor, Market Vectors Agribusiness ETF (NYSE:MOO), has a 0.56% expense ratio, 46 holdings, and covers all cap sizes. It appears that the stocks in CROP represent less than 15% of MOO’s holdings, so there is probably room in the market for both of these products.
Also competing for investor attention in this space is the PowerShares Global Agriculture Portfolio (NYSE:PAGG) with a 0.75% expense ratio. Its 40 holdings do not include any machinery companies, giving it a different tilt. Jefferies | TR/J CRB Global Agriculture Equity Index Fund (NYSE:CRBA) is yet another potentially competitive offering, but it is on ETF Deathwatch and therefore poses no immediate threat.
Written By Ron Rowland From Invest With An Edge Disclosure: Long MOO
Ron Rowland is the founder of Invest With An Edge and serves as the Executive Editor. He is also editor of AllStarInvestor.com and Chief Investment Officer of Capital Cities Asset Management (www.ccam.com). Quoted widely in the financial media, Ron is the industry go-to guy for sector rotation insight and investment strategies using ETFs and mutual funds.